Home – New Forums Money matters Active asset purchase vs capital gains.

  • This topic is empty.
Viewing 11 posts - 1 through 11 (of 11 total)
  • Author
    Posts
  • #967991
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Hi,
    I am a little confused about what the government would deem to be an “active asset”. I sold a business one and a half years back and have been told that I have a two year period to purchase another business or active asset. What I want to know is can I start a new business, purchase plant and machinery and stock etc and will that be classified as an active asset? I have looked and looked but cannot find a business for sale that is the right fit so to speak and also do not wish to just buy a dud business to avoid tax, may as well pay the tax in that instance. The amount is $175k that is up for capital gains inclusion. Does anyone here have any experience with this subject and can enlighten me somewhat? Thanks in advance.

    #1030173
    Dardee
    Member
    • Total posts: 430
    Up
    0
    ::

    This is one for your accountant. If you don’t have one then find one quick. You need proper advice based on your circumstances.

    #1030174
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Anyone know any good accountants in Perth? We have just relocated from NSW and our accountant over there is hard to get in touch with and its become a bit of a pain. When we last lived in Perth we could not for the life of us find a decent accountant that seemed to have our best interests at heart. Cash and grab seems to be the way of the world when it comes to GP’s and accountants these days. Sorry to any of these professions I may have offended by that remark but that has been our experience of late. I wouldn’t have thought my query was a “specific to us” type scenario and would have thought it cut and dry that you can either use the funds to start up a new business or not.

    #1030175
    CruzAccountant
    Member
    • Total posts: 195
    Up
    0
    ::

    Hi Blueeyes

    Hope this helps. Here’s the definition of an active asset: http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s152.40.html

    Richard

    #1030176
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Hi Richard,

    Thank you for the most informative link. I read with interest the example which I have listed below. One consideration was to register a business name for example “Sunsets accommodation” and provide short term accommodation with breakfast foods supplied to the kitchen but not cooked by us on premises. This house would not be lived in by us so it sounds a little like one of those gray area situations ie: is it a rental property or a guesthouse? It is in fact a bit of both, what are your thoughts?

    Here is the example:

    Example: A company uses a house purely as an investment property and rents it out. The house is not an active asset because the company is not using the house in the course of carrying on a business. If, on the other hand, the company ran the house as a guest house the house would be an active asset because the company would be using it to carry on a business and not to derive rent.

    Thanks for your assistance.

    #1030177
    CruzAccountant
    Member
    • Total posts: 195
    Up
    0
    ::

    Hi

    That was taken straight from Section 152-40(4)(ii). The example is specific, however it differentiates between running a “business” as opposed to a passive investment of a rental property.

    You will still need to pass the tests in Section 152-35(1).

    Richard

    #1030178
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Hi,

    Yes I know it was straight from the link you sent me, that was precisely what I was pointing to. They state if it is run as a guest house and not merely a rental property it can be classed as a business or active asset or am I not reading that correctly?

    #1030179
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Bump

    #1030180
    James Millar
    Participant
    • Total posts: 1,739
    Up
    0
    ::

    Yes you are reading it correctly. Provided it’s main use is not to derive rent and it is used in the business as a core asset it then it will pass the test.

    Are you certain that your accountant has minimized the previous capital gain to it’s lowest level? There are several cascading concessions that apply in these cases and you need to make sure all are accessed if possible.

    I think your initial comments are important as well. There is little point just trying to find a business that meets your tax needs. Tax driven business decisions are not the way to go.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1030181
    BlueEyes
    Member
    • Total posts: 16
    Up
    0
    ::

    Hi James,

    Thanks for your comments, most appreciated. I think as long as the property is run correctly (our local council now requires you to have a license to run a short term accommodation premises) and provides bedding, furnishings, food choices etc then I am sure it will not be classed as a regular rental property as it has to be looked after and serviced. Hopefully I am correct with my thinking.

    #1030182
    Deduct Your Home
    Member
    • Total posts: 8
    Up
    0
    ::

    Hi BlueEyes – this post is very late but you never know – you might still get to read it and if so, I’m hoping you’ll find it useful or pass it on.

    There has been some very relevant and pertinent discussion on this and where I agree with James.

    Perhaps though what you haven’t considered is to purchase a nice home from where to also run a business. Done right, this can allow you to satisfy the cgt small biz rollover provision. This is a highly unusual strategy that I’ve done myself under cover of a private ruling. Don’t be lured by seemingly off-the-shelf advice as doing this gets complicated and remains so after the fact but it’s well worth the effort to understand it and will save you much more tax than just the initial bout of otherwise payable cgt. Hence if your accountant is not a full bottle, please don’t hesitate to drop me a line and I can see it to it that you are appropriately advised by a competently trained registered tax agent or directly by the ATO.

    Best of luck.

    Frank
    http://www.www.deductyourhome.com.au

Viewing 11 posts - 1 through 11 (of 11 total)
  • You must be logged in to reply to this topic.